Author Topic: Aussie Uni student. Should i take a capital loss and move funds to an Index?  (Read 3853 times)

gogo419

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Hi MMM,

Stumbled upon FIRE principles recently and it is something that truly resonates with me. Need some advice on my current investments. I still have 12 months of study left.

Currently have $6000 invested in 8 stocks (cost $9000) which isn't the greatest return on paper.... Having read up on all the info on this site and others i know i really need to get savings into index ETFs and forget about playing the lotto with individual companies.

Just not sure whether i should realise a capital loss and move the money into some index funds or just leave it and see what happens in 5 years time. A couple of the stocks were pure speculation and i doubt will go back up..

I'm not too fussed to leave the money there and focus on my future investments.

Look forward to hearing your replies.

gogo

Anatidae V

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I have no idea, but I'm hoping someone more knowledgeable will answer! I haven't even picked my index fund for my first $5k :)

bigchrisb

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Ouch.  Capital losses are never fun.
The Silver lining is that capital losses will carry forward until you can use them.
So, in your shoes, if I was decided that index funds were the way to go, then I'd just get on with it and treat the carried capital loss deduction as a bonus.
I carried about $40k of capital losses out of the gfc, and since they have been very useful

WerKater

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Just not sure whether i should realise a capital loss and move the money into some index funds or just leave it and see what happens in 5 years time. A couple of the stocks were pure speculation and i doubt will go back up..
The capital loss has already occurred. Your decision should not be based on what happened in the past but only on your projections for the future. If you think (as I do; and there is a lot of evidence for it) that index funds are better, you should switch everything to index funds. This is what I would do in your place.
The only argument for keeping the old investments that I see (except as a reminder not to try stock-picking ;) ): If you could later use the losses for tax-loss-harvesting since I suppose you don't pay taxes now as a student. But I have no clue how this works in your jurisdiction. And even taking that into account, you are probably better off with index funds in the long run.

misterhorsey

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I think the simple answer is to sell out and shove it all into an index and be done with share picking.

But I think it can also depend on what you bought.  Are any of the shares you have reasonably high yielding, relatively stable, blue chip-ish stocks?  If so, they may fluctuate for a bit, but they could be worth hanging onto for the yield. And if they are blue chips chances are the index funds will hold some of it. 

But that doesn't much for diversification and it doesn't sound like they are terribly good performers either.

I think the tricky thing about realising the capital loss is it can hang around for a while, doing nothing.  And they don't unfortunately allow you to index the size of that loss to keep up with inflation, so the 'value' of that loss diminishes over time.  For example, I sold out of some speculative shares in 2003. I was completely out of shares for a long period so it took me to 2015 to make some profits to offset them against!

Good on you for contemplating cutting your losses tho and building up from a solid foundation.  Takes some of us (i.e., me) decades to realise this.

qwerty8675309

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I agree with the other posters. Unless the stocks you own are something you are happy to hold very long term, I would sell them at a loss, and buy into a diversified ETF. If you look on the bright side, you can use the CGT losses from the sale to offset the CGT gains in later years. Don't forget to take into consideration your brokerage in your cost base.

I would also try and work out a good long term plan for your portfolio going forward before buying in again. There are some great posts in the Australian Investing Thread (http://forum.mrmoneymustache.com/investor-alley/australian-investing-thread/) that discuss asset allocation.

dungoofed

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May I ask how you chose to get into those positions?

I tend to agree with everyone who is saying "take the loss and move on" but actually I have a completely irrational position in my own portfolio similar to WerKater's suggestion.

forummm

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Congratulations! You've learned a valuable lesson. Stocks frequently go down--a lot. And up too. And individual stocks tend to go down (and up) much farther than broadly diversified indexes. If you're looking to have more stable returns, you should hold a diversified index fund and not individual shares. I suggest you take the loss, deduct it from your taxes, and buy a low-fee index fund instead.

CoderNate

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I think the answer to this is how interested you are in trading, as well as how well these stocks fit into your investment thesis. If you aren't interested in reading earnings reports and macroeconomic data, then you should sell now and invest in index funds.

If you DO want to actively trade, then you need to evaluate the prospects of your investment in the current environment, not the environment in which you bought the stocks.

forummm

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I think the answer to this is how interested you are in trading, as well as how well these stocks fit into your investment thesis. If you aren't interested in reading earnings reports and macroeconomic data, then you should sell now and invest in index funds.

If you DO want to actively trade, then you need to evaluate the prospects of your investment in the current environment, not the environment in which you bought the stocks.

Even if you wanted to trade, I would recommend against it. There are too many experts out there who do this for a living who you'll be competing with.

SU

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The $9000 is a sunk cost. The question you ought to be asking is, 'Should I spend $6000 on an index fund or shares picked at random.'

The answer is 'index fund'. And then +1 to everything qwerty8675309 said.

gogo419

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Thanks for all your replies!

Theres really only only one stock that i believe is worth keeping. I think i will sell out of the others in the coming week and move it all into 3 ETF's. Economic environment has changed significantly since a couple of the purchases were made and for those companies i believe that i have more to gain from moving the funds into an index.

Now just need to get another part time job to keep pumping the money in... :)

gogo

lolzmonster

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hey gogo just keep in mind that brokerage can minus off a large portion of your gains, personally i would just plunk it all in one etf, and when you have saved a satisfactory amount (3000/4000+) maybe then buy somemore? otherwise the brokerage costs equate to about 1% of your portfolio, and that be quite a bit in the long term.

Just my cents :)

Mighty-Dollar

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I quit trying to pick stock a few years ago and have never looked back. If Jim Cramer's picks are neither good nor bad then who am I kidding that I can pick winners? Now I don't have to study individual company charts or any of that crap. I just keep an eye on the broad market.

gogo419

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hey gogo just keep in mind that brokerage can minus off a large portion of your gains, personally i would just plunk it all in one etf, and when you have saved a satisfactory amount (3000/4000+) maybe then buy somemore? otherwise the brokerage costs equate to about 1% of your portfolio, and that be quite a bit in the long term.

Just my cents :)

Yep. Thinking to put it all into Vanguard VGS to start with.

forummm

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hey gogo just keep in mind that brokerage can minus off a large portion of your gains, personally i would just plunk it all in one etf, and when you have saved a satisfactory amount (3000/4000+) maybe then buy somemore? otherwise the brokerage costs equate to about 1% of your portfolio, and that be quite a bit in the long term.

Just my cents :)

Yep. Thinking to put it all into Vanguard VGS to start with.

Sounds like a good plan!